Past Predicts The Future

When Hollywood made those "back to the future" movies in the 1980s, producers could easily have set the scenes down on the farm. Price prognosticators 25 years ago could likely have predicted, in most cases, when corn growers would enjoy their strongest annual prices far off into the early 21st century.

Using historical data, growers can often determine the best time to sell at a cash price without having to use futures or options. Some, like Justin Garrett, use historical seasonal price trends and real-time market signals to make cash sales that usually are near the top of the market.

Garrett, his mother and stepfather Linda and Bobby Williams, and stepbrother Bryce Williams, grow corn, wheat and cotton near Dumas, TX. Garrett sometimes uses CBOT trades to secure price protection. But with last year's projected large U.S. corn crop in the 10-billion-bushel range, cash sales in the spring made the most sense to him.

"There were few opportunities to use futures or options (to generate good prices)," says Garrett. "It was more like a survival year with higher input costs for irrigation and other factors. So in May and June we made direct sales when December futures were in the $2.50-2.60/bu. range on about 50% of new-crop corn. Those sales were made at a time when we could see a price drop was coming."

Garrett and the Williams normally try to have a majority of their corn sold before placing it into their 200,000 bu. of on-farm storage, also used for their large wheat crop.

"We usually try to market at least 80% of our corn before harvest begins," says Garrett. "Usually our philosophy is to never put it in the bin unless it's sold. But that was different for '03, when we had only half our crop sold."

Seasonal data indicated that the other half of the crop would garner a better price in early '04. Bob Wisner, ag extension economist at Iowa State University, says forward contracts for late April or May, or cash sales for early June delivery, should provide better marketing opportunities for old-crop corn than early winter prices.

"Last fall's low subsoil moisture could encourage more weather-related price rallies in both cash and futures markets," says Wisner. He notes that the '03 Midwest corn harvest price in the $1.80-2 range likely forced many growers to hold off on fall and early winter sales.

"The typical pattern is for corn prices to be lower at harvesttime, then gradually increase into the next spring," Wisner adds. "That can vary, especially in High Plains growing areas where local supply and demand can cause more seasonal strength in the market."

Normal crop years also see a similar seasonal pattern for soybeans. But '03 was far from normal, since yields were weak due to late summer dry weather. Prices, normally low at harvest, spiked to $7/bu. -- about $2 above what they were in midsummer.

Growers who didn't sell new-crop beans at harvest highs could see prices drop in the winter and spring, depending on projected South American soybean production.

"If South America has good yield potential, there could be risk in U.S. soybean marketing in early '04," says Wisner. "Growers really need to monitor the South American situation when deciding when to sell soybeans."

Robert Anderson, University of Minnesota extension economist, says historical seasonal prices often conflict with growers' need for money for large rent, mortgage and tax obligations.

"Too much of the crop is sold during the February-March time period when markets are historically low and cash flow needs are large," he says. "If possible, producers need to plan ahead by selling in advance of this late winter period to provide for cash-flow needs."

Anderson points out several mistakes growers make in marketing their grain. "Producers won't sell when markets are going either up or down rapidly because they're too emotional," he says. "They are most comfortable selling when markets are stable, which is common for markets with relatively low prices."

"Growers often wait until after harvest and, in most cases, after Jan. 1 before they begin selling," he says. "They try to finish before the new harvest begins so they have room for the next crop. But this is only an eight-month marketing window."

Anderson adds, "They need to sell increments before planting, after planting, after harvest, and during the spring and summer storage season. Using a longer marketing window increases the chances of capturing good marketing opportunities."

Also, selling at harvest to make room for the new crop can mean marketing when basis levels are at their weakest. "Growers need to provide for storage space before then" says Anderson.

Garrett would like to add more storage capacity to his operation. "Having storage space has helped us be able to market year-round," he says. "We would like to expand those capabilities. With on-farm storage, we can market in just about any month, not just in December."